This paper defines customer involvement in service innovation and customer knowledge transfer by way of intensive literature review, and makes indepth study of the theoretical foundations of the customer knowledge transfer. Furthermore, the paper explores the mediating effect of customer knowledge transfer in the relationship between customer involvement and innovation performance as well as the moderating effects of casual ambiguity and knowledge conflict in the relationships among those constructs mentioned above. Finally, the paper develops a theoretical model of customer involvement and innovation performance by integrating the mediating and moderating mechanisms from perspective of customer knowledge transfer, and points out the limitation and future research directions.